Support and Resistance Zones. A new view of the currency trader!
Everyone builds technical levels on charts - both experienced traders and green beginners. Building support and resistance levels - This is probably the first thing a trader who comes to the currency market learns.
It would seem, what is so difficult? You have drawn a line through the local minimum - that's the support level, through the maximum - that's the resistance level ready. However, this method of construction is a serious mistake that leads to missed or incorrect entries into the deal.
In this article we will discuss how to properly build support and resistance levels.
Not levels, but zones
To begin with, the experts of Fortrader magazine offer to recall the wording of the price level on the currency market.
The price level is an area or zone of values that the price cannot immediately overcome.
Pay attention to the words "area or zone of values", that is where the trick lies. By drawing a line on the chart through the maximum or minimum, the trader marks a specific price value, depending on which the trader determines what happened - a breakout or a pullback.
For better understanding, let's take one of the levels built on the hourly chart. For example, this is the resistance level in the euro/dollar pair, built at the price of 1.23966.
Now let's look at the same level on a smaller time interval. As you can see for yourself, here the level works a bit differently than on H1.
In the first case it would have been possible to open a sell trade on the rebound from the resistance level, but the trader did not do it, because the price did not reach the level drawn by him. In the second case, a long trade would have been opened on the breakdown of the level. In the best case, it would have brought a very small profit or would have been closed at breakeven. At worst, the deal would have made a loss.
But if the resistance was built not as a line, but as an areathen the picture looks quite different. It is clearly seen that the price could not overcome the resistance zone and in this case, a sell trade on the rebound from the zone would be opened.
As you can see for yourself, using support and resistance zones is more effective than using just lines.
Where resistance and support zones come from
Every trader knows that technical analysis is the basis of trading. Ask any trader, they will tell you at once that take profit order should be placed at the opposite trend line, and stop loss - above or below the previous local maximum or minimum.
And there are millions of such traders in the currency market. So resistance and support zones are exactly the places where traders place their take profit and stop losses.
The accumulations of these orders are very important - when the price reaches them, hundreds of thousands of, for example, stop-losses are triggered almost simultaneously. Accordingly, the price gets an impressive impulse for further movement.
However, traders are not robots, so stop-loss values differ, although they are within one narrow range. It is this range that is the support or resistance zone.
It is quite easy to build such price zones. It is enough to find the corresponding price reaction on the chart and mark the corresponding zone on it. Scroll through the history - you will see that the zones you have marked really work and are much more effective than the lines drawn along the extremes.
Conclusion
Using support and resistance zones in trading, a trader sees the market picture more clearly and will not miss a signal to open a position, unlike a trader who operates with ordinary technical levels. A "classic" trader will simply not open a trade because the price has not reached his level.
Resistance and support zones will work on any time interval, only their width will differ. Try this method and you will see that your trading has become even more effective and profitable.
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I have been talking for a long time about the so-called (by me) "struggle zones", which are actually the price levels described above. And in such zones it is possible to distinguish bifurcation points, which are actually the upper and lower boundary of the zone.